PoliticOlogy’s Analysis
If conventional wisdom is to be believed, the next President of the United States will be selected on one issue: jobs. As the inaugural post of an ongoing feature examining the positions and records of Mitt Romney and Barack Obama, PoliticOlogy takes a look at Mitt Romney’s job plan, examines its claims and analyzes whether it can deliver.
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Reducing Marginal Tax Rates
Economists Joel Slemrod and Jon M. Bakija write that the lack of a relationship between cutting taxes and creating jobs is "a rare example of a question on which there is a broad consensus among economists." Kevin Drum shows this relationship clearly, showing the similarities between changes in tax rates for the richest Americans and reductions in tax rates.
If a Tax Rate Falls...
Will the Economy Notice?
In a masterful editorial for the New York Times, Christina Romer, one of the chief architects of the stimulus package, demolishes the arguments for reducing the marginal tax rate, writing that there is very little evidence of a relationship between decreasing the tax rate and decreasing unemployment, and that "this means policy makers should spend a lot less time worrying about the incentive effects of marginal rates and a lot more worrying about other tax issues."
Lower Corporate Taxes
Romney complains that the US corporate tax rate, 39%, is the highest in the developed world and calls for it to be lowered. This statistic is highly misleading. In fact, the CBO reported that corporate tax receipts, or what companies actually end up paying, fell to 12%, the lowest level since 1972. Why the difference? The New York Times notes that US corporations take "advantage of myriad breaks and loopholes that other countries generally do not offer," and therefore "pay only slightly more on average than their counterparts in other industrial countries. And some American corporations use aggressive strategies to pay less — often far less — than their competitors abroad and at home."
So, while Romney's technically correct in claiming that the US corporate tax rate is the highest in the developed world, the United States pays less than the average of comparable countries. That's because US corporations have been particularly canny about getting out of paying their fair share of taxes. And this trend isn't equal. The worst culprits are the biggest companies that can afford the legal staff to get around the law.
That doesn't mean that lowering the corporate tax rate isn't important, but it shouldn't be the focus of Romney's economic plan. The focus should instead be on simultaneously lowering the posted tax rate, 39%, and coupling it with an elimination of loopholes and a broadening of the tax base. That is, in a nutshell, Obama's plan. Obama calls for reducing the corporate tax rate from 35 to 28%.
Eliminate regulation
Romney wants to get rid of financial regulation, particularly Dodd-Frank. This one’s just ridiculous, so I don’t think it deserves the time and energy his other positions. ProPublica’s analysis of the relationship between regulation and jobs is particularly valuable. The short answer: there is little, if any, effect. And that doesn’t take into account how a lack of regulation got us into this mess in the first place. So no, we don’t need less regulation. We need more. Plain and simple.
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Related Post: Is A Romney Presidency The Best Solvent For Legislative Gridlock?
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